2015: Apple Becomes App

It's CES in 2015: Apple has successfully executed its transition from hardware company to ecosystem company. The mini iPads and iPhones were just part of an overall strategy of increasing market share in order to drive growth of revenues from apps and other services.

CES 2015 has ended, and we find Apple in the middle of a transition it started with the iPad 2, the mini and the mini iPhone where it was pushing to get an iOS device in as many hands as possible, as quickly as possible, to win the ecosystem wars.

The war between Apple and Google rages over the next wave of consumer spending. While Microsoft is still playing catch-up with the Surface and Windows Phone, Apple and Google are fighting for dominance with their walled gardens. The more customers using their mobile devices and apps, the more likely they'll be returning customers.

But for Apple the last 2 years has been a losing battle. There is downward price pressure from competitive Android devices. In fact, seventy-two percent of all smartphones sold in Q3 of 2012 were loaded with the Android operating system. While Apple is still a minority player, its market share has grown over the last 2 years.

Apple could tell that their margins were unsustainable. It was seeing reduced profits on new releases because of competition with cheaper older versions of its own products. Consumer Intelligence Research Partners found that the iPhone 5 accounted for just 68 percent of iPhone sales the month of its release.

With diminishing profits for each device, Apple's long-term goal is to get as many customers as possible into the Apple ecosystem before the music stops and the devices can't be sold at a premium.

The transition has made, and will continue to make an Apple that will make money on services and delivering a lot of customers to it. So it needs to maximize market share now for long-term growth. The iPad mini is cheaper, yet "every inch an iPad," and the same goes for the iPhone mini. And each cheaper iDevice builds toward a greater market share for their walled garden in the future.

2015 CES introduced hundreds if not thousands of apps and devices that plug into a mobile OS. And I don't mean the refrigerator that orders mayonnaise from the grocer, but one that tells you on your smart phone how many potential meals it has in it and makes recommendations. Google has been doing this for years with Google Now. Google Now delivers information to you as you need it.

With hardware so cheap, profit margins on it have plummeted just as they did with PCs years ago. As a result, handset companies are more than ever vassals of the carriers and software companies. Indeed, this is the biggest problem in the industry, as vertical consolidation is now the rule, with Apple and RIM still controlling their entire chains, Windows Phones only on Nokia, and Android dominated by Samsung.

Hardware has become cheap and boring; only the ecosystem is interesting, and it's the ecosystems which compete for customers.